District Court Blocks Attempt to Bar New Prior Art References Based on IPR Estoppel

The U.S. District Court for the District of Massachusetts on May 4 denied a motion for partial summary judgment by Palomar Technologies, Inc., holding that the estoppel bar relating to inter partes review (IPR) proceedings did not apply to two prior art references that had not been raised in a prior IPR hearing at the Patent Trial and Appeal Board (PTAB).

Patent and Prior Art

Palomar brought suit against MRSI Systems, LLC in the Southern District of California on July 6, 2015 for infringement of Palomar’s U.S. Patent No. 6,776,327. In October of 2015, MRSI petitioned the PTAB for IPR of all 48 claims of the ‘327 Patent on the grounds of anticipation or obviousness based on five prior art references. The PTAB instituted and ultimately upheld 47 of the 48 claims.

Following the PTAB decision, the district court proceedings were transferred to the Massachusetts court in February 2018. Palomar filed a motion for partial summary judgment arguing that MRSI was estopped under 35 U.S.C. § 315(e)(2) from using the asserted prior art references to challenge the patent’s validity, and the court held that “all challenges based on prior-art references on which the PTAB based its final written decision, as well as five other references that MRSI cited but did not specifically assert” were barred under the statute.

However, regarding two other asserted references, the court ruled that an evidentiary hearing was necessary to determine whether MRSI knew about the references at the time of the PTAB hearing. Those two references were U.S. Patent 5,035,047 (the Harigane reference) and PCT Patent Publication 01/72097 (the Ueno reference).

The court noted that “a prior-art reference not raised in the IPR proceeding is subject to the statutory bar of 35 U.S.C. § 315(e)(2) if (1) the IPR petitioner actually knew of the reference or (2) a skilled searcher conducting a diligent search reasonably could have been expected to discover the reference.”

The Experts

Palomar presented expert witness testimony by Steve Kunin, a frequent IPWatchdog commentator and panel participant, and former Deputy Director for Patent Examinations at the USPTO. Kunin testified that “a skilled researcher conducting a reasonable search would have located both the Harigane and Ueno references.” He said that MRSI had identified another patent, U.S. Patent No. 5,446,960, which was cross-referenced in class 29/740, as were both Harigane and Ueno. “Using Isaacs as a starting point, a properly targeted keyword search would have located both references,” said the court, summarizing Kunin’s testimony.

However, MRSI’s fact and expert witnesses testified that two different search vendors and a law firm failed to discover the references; that the search methodology outlined by Kunin was not the typical approach used for MRSI’s situation or starting point; and that the fact that the references located in the initial search led to the institution of an IPR indicates it was a relatively strong search. MRSI’s expert witness, Robert Stoll, also a long time IPWatchdog source and former USPTO Commissioner for Patents, said that, in his view, “Kunin was describing a ‘scorched-earth’ methodology of prior art searching, which did not align with what a skilled searcher conducting a diligent search would actually do.”

Court’s Analysis

In its analysis, the court considered that Palomar had presented no evidence proving “or even casting doubt on” MRSI’s contention that it had no actual knowledge of the references at the time of the IPR, and that MRSI’s searchers and fact witness had presented adequate testimony and evidence showing that there was no actual knowledge. This satisfied prong one, the subjective prong of the estoppel bar, in MRSI’s favor.

As to the objective prong of the estoppel bar, the court weighed various objections by MRSI to Kunin’s testimony, which it found credible and considered as part of its analysis. Ultimately, the court found that “Kunin did not provide a compelling reason why a reasonably diligent searcher, at the beginning of the search, starting only with the ’327 Patent, and without knowing where he wanted to wind up, would focus the search effort solely on classes 29/740 and 29/739.”

The court further found that Kunin’s proposed search strings were “clearly developed with the benefit of hindsight,” and did not give substantial weight to his testimony as to what an objectively reasonable search would have entailed.

While the court characterized MRSI’s evidence on the objective prong as “thin” and the testimony as being “at a high level of generality, with relatively little detail as to actual contours of a reasonable search, and virtually no evidence as to appropriate search strings,” it ultimately was persuaded by MRSI’s evidence on the whole and concluded that it was “more probable than not that a skilled searcher conducting a diligent invalidity search concerning the ’327 Patent reasonably could not have been expected to discover the Harigane and Ueno references.”

The judge then outlined 11 factors established by a preponderance of the evidence to meet the objective prong. The second factor states: “There is no set way to conduct an invalidity search, and reasonable experts could and do disagree as to the approach to take in a particular case.”

Thus, despite the outcome of the IPR, MRSI is now free to assert invalidity grounds based on the Harigane and Ueno references.

Implications

According to a press release published by one of the firms representing MRSI, Sheehan Phinney Bass & Green PA, this was the “first-ever bench trial on whether estoppel based on prior art from an earlier inter partes review before the [PTAB] applies to newly-found prior art references asserted subsequently in a district court litigation.”

Firm shareholder Peter Nieves told IPWatchdog that the case has clarified for patent attorneys that there is no need to decide between filing an IPR or seeking invalidation at the federal district court. “There has always been the option to do both,” said Nieves. “It just needs to be done properly.”

Nieves said the level of detail Chief Judge Saylor provided will serve patent attorneys well, and should serve as guidance for other courts tackling this issue:

For years, attorneys have been deciding between filing an IPR or seeking invalidation at the federal district court….Chief Judge Saylor correctly makes it clear that just because a prior art reference reasonably could have been found, it does not mean that it is reasonable for the skilled searcher to be expected to have discovered the prior art reference with a diligent search. Anyone can reverse engineer a search when you know the target prior art reference. That is why the test cannot be whether the prior art reference reasonably could have been found.

Palomar had not responded to a request for comment as of the time of publication.

In addition to Nieves, Sheehan shareholders Robert Lucic and James Harris, and associate Bryanna Devonshire served as co-counsel to MRSI with Crowell & Moring partner Brian Paul Gearing, counsels Ali Tehrani and Zach Ruby, and associate Michelle Chipetine.

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